In India, income tax is levied based on the income earned by individuals during a financial year (April 1 to March 31). The taxation system follows a progressive tax structure, meaning that as your income increases, the percentage of tax you are liable to pay also increases. The Income Tax Department of India has defined various tax slabs that categorize income ranges for different individuals. These tax slabs are periodically revised based on the government’s policies and economic considerations.
For individual taxpayers, India offers two tax regimes:
- Old Tax Regime: This includes several exemptions and deductions.
- New Tax Regime: Introduced in Budget 2020, this regime has lower tax rates but no or limited deductions/exemptions.
In this article, we will cover both regimes to provide you with a clear understanding of the current tax slabs for individuals in India.
1. Old Tax Regime (With Deductions and Exemptions)
Under the old tax regime, individuals can claim various deductions and exemptions such as Section 80C, Section 80D, HRA (House Rent Allowance), and more. The income is taxed after applying these deductions.
The tax slabs under this regime for the Financial Year 2023-24 (Assessment Year 2024-25) are as follows:
For Individuals Below 60 Years of Age
- Up to ₹2.5 lakh: Nil (no tax)
- ₹2,50,001 to ₹5 lakh: 5% of the income exceeding ₹2.5 lakh
- ₹5,00,001 to ₹10 lakh: 20% of the income exceeding ₹5 lakh
- Above ₹10 lakh: 30% of the income exceeding ₹10 lakh
For Senior Citizens (60 to 80 Years of Age)
- Up to ₹3 lakh: Nil (no tax)
- ₹3,00,001 to ₹5 lakh: 5% of the income exceeding ₹3 lakh
- ₹5,00,001 to ₹10 lakh: 20% of the income exceeding ₹5 lakh
- Above ₹10 lakh: 30% of the income exceeding ₹10 lakh
For Super Senior Citizens (Above 80 Years of Age)
- Up to ₹5 lakh: Nil (no tax)
- ₹5,00,001 to ₹10 lakh: 20% of the income exceeding ₹5 lakh
- Above ₹10 lakh: 30% of the income exceeding ₹10 lakh
2. New Tax Regime (Without Deductions and Exemptions)
The new tax regime was introduced to simplify the tax system by offering lower tax rates without the complexity of exemptions and deductions. However, taxpayers who opt for this regime must forego several benefits, including deductions under Section 80C and HRA. This regime is optional, and individuals can choose between the old and new tax regimes based on which is more beneficial to them.
The tax slabs under the new tax regime for the Financial Year 2023-24 (Assessment Year 2024-25) are:
- Up to ₹2.5 lakh: Nil (no tax)
- ₹2,50,001 to ₹5 lakh: 5% of the income exceeding ₹2.5 lakh
- ₹5,00,001 to ₹7.5 lakh: 10% of the income exceeding ₹5 lakh
- ₹7,50,001 to ₹10 lakh: 15% of the income exceeding ₹7.5 lakh
- ₹10,00,001 to ₹12.5 lakh: 20% of the income exceeding ₹10 lakh
- ₹12,50,001 to ₹15 lakh: 25% of the income exceeding ₹12.5 lakh
- Above ₹15 lakh: 30% of the income exceeding ₹15 lakh
Key Features of the New Tax Regime:
- No deductions for investments (like Section 80C), medical insurance premiums (Section 80D), or home loan interest (Section 24).
- No exemption for allowances such as House Rent Allowance (HRA), Leave Travel Concession (LTC), and others.
- Offers a simpler, more straightforward tax calculation, particularly for individuals with fewer investments and deductions.
3. Rebate Under Section 87A
Both under the old and new tax regimes, taxpayers with a total income of up to ₹5 lakh are eligible for a rebate under Section 87A. This rebate allows them to reduce their tax liability to zero, meaning no tax is payable for incomes up to ₹5 lakh, even if some of that income falls into taxable slabs.
4. Surcharge and Cess
In addition to the tax payable as per the slab rates, individuals may also be subject to the following:
Surcharge:
A surcharge is applicable if the total income exceeds specific limits:
- 10% on income between ₹50 lakh and ₹1 crore.
- 15% on income between ₹1 crore and ₹2 crore.
- 25% on income between ₹2 crore and ₹5 crore.
- 37% on income above ₹5 crore.
Health and Education Cess:
A 4% health and education cess is levied on the total tax liability (including surcharge, if applicable).
5. Choosing Between Old and New Tax Regimes
Taxpayers are now provided the option to choose between the old tax regime and the new tax regime. The best regime for an individual depends on their financial profile, specifically whether they have significant investments or deductions.
- Old Tax Regime: Beneficial for individuals who invest in tax-saving instruments like PPF, ELSS, or have expenses like home loan interest or medical insurance premiums.
- New Tax Regime: Suitable for those who prefer lower tax rates and don’t want to deal with the complexities of calculating exemptions and deductions.
Conclusion
The tax structure in India is designed to ensure that individuals with higher incomes contribute more to the nation’s revenue. The choice between the old and new tax regimes offers flexibility based on an individual’s financial planning and investment preferences. It is advisable to assess your financial situation and consult a tax professional to determine which regime works best for you. Understanding the tax slabs and the benefits of each regime can help optimize your tax liability and allow better financial planning.